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Offset Mortgage

What is an Offset Mortgage?

An Offset Mortgage allows your savings to be factored into your mortgage and reduce the balance of your mortgage overall. To do this you must have a savings account and a mortgage with the same lender.

The concept took off in the early nineties, with two basic types of offset deal. The first offset mortgages launched in the UK were current account mortgages (CAMs), linking a homeowner`s current account with the mortgage. The second type of offset is where the deposits are kept in separate accounts or 'pots', but linked for the purposes of interest calculation.

With an offset mortgage you are given the option of lowering your monthly repayments, or reducing the amount of your mortgage overall. It is up to the borrower to decide which makes most financial sense for their circumstances overall.

Q: What are the drawbacks of an Offset Mortgage?

A: The main disadvantage of an offset mortgage is that you will not gain any interest on your savings. However, considering the low interest rates at the moment and taking into consideration that tax may have to be paid on top of any money saved, some find the benefits outweigh the drawbacks.

Jargon Buster

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